Costco enjoying a small boost from Sam's Club closures

Dive Brief:

Costco Wholesale Corporation on Wednesday said that second quarter net sales rose 10.8% year over year to $32.28 billion. Net sales for the first 24 weeks of fiscal 2018 rose 12% to $63.4 billion, according to a company press release.
Same-store sales in Q2 rose 7.1% in the U.S. (or 5.7% taking out fuel and foreign currency fluctuations), 8.7% in Canada (2.5% without fuel and currency) and 15.7% internationally (7.4% without fuel and currency). Overall, same-store sales rose 8.4% (or 5.4% without fuel and currency). E-commerce sales in the period rose 28.5%.
Membership fee revenue rose to $716 million from $636 million a year ago, and Costco credit-card holders increased to 92.2 million by the end of the quarter, according to the company. Net income for the quarter was $701 million, or $1.59 per diluted share, compared to $515 million, or $1.17 per diluted share, last year. Earnings rose 17 cents per share due to a net tax benefit $74 million resulting from last year's tax bill. Excluding that, net income grew 22%, according to a company press release.

Dive Insight:

Costco continues to post healthy sales and profits, along with gains in memberships and renewal rates in the second quarter. Previous concerns that Amazon's rising Prime membership would curtail the retailer's momentum have lessened in recent months, as research shows that plenty of consumers are willing to pony up for both.

The membership retailer is seeing increases in both membership signups and renewals. Costco took in $716 million in membership fees in the quarter, up 12.6%, or $80 million, thanks in part to a rate increase in the U.S. in Canada.

The company is also seeing some new signups and sales that are "small but continuing" in areas where Walmart has shuttered 63 of its Sam's Club warehouse stores, Costco CFO Richard Galanti said in a conference call Wednesday afternoon. The company expects to gain some 10% or 20% of that business — so low in part because most of the Sam's Club locations aren't all that close to a Costco. Still, "with all the other buckets, even a small bucket is a nice thing to have," Galanti said.

Overall, renewal rates rose somewhat to 90.1% in the U.S. and Canada, and 87.3% internationally.

Galanti said that tax reform is lowering the retailer's tax bill from 35.6% to 27.7% in Q2, and the company is using much of the benefit to pay its employees better, boost value for members and increase the bottom line.

Costco already pays its employees better than most, and Galanti said the company always wants to stay ahead of the pack. And it's not just what he called the "headline grabbing" details of starting wages but also health and dental benefits, of which Costco foots some 90% of the bill, including for spouses and dependents. "We do what we're going to do even before tax law changes. We're going to do more because we can," he said.

Target has moved to a starting wage of $12 per hour with an aim for $15, and Walmart has boosted its starting wage to $11, along with paying a one-time bonus.